Ben Bernanke can talk tough, but the economy would sputter if the cash stopped flowing. Also: The inflation or stagflation that's probably in our future.
As my good friend Fred Hickey noted last week, it's absurd that the whole world would be waiting for the congressional testimony of a man with nothing to say. But that was the scene Wednesday as Federal Reserve Chairman Ben Bernanke made his way up Capitol Hill.
Bernanke can do all the tough talking he wants. But he's not going to take much action to reduce liquidity, given that the economy does not appear to be in a self-sustaining mode. Confirmation comes from two data points last week: Month-to-month new-home sales dropped 11.2%, after expectations of a 3.5% gain, and consumer confidence declined significantly.
Results for the latter prompted lots of chatter about misleading results, given that recent readings on other measures of sentiment haven't been as negative. Perhaps consumer confidence isn't quite as disappointing as the number seemed to indicate. But on the other hand, I wouldn't be shocked if it was. Faced with fears about jobs, the housing crisis and incipient inflation, the consumer is really in a bind. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids= 27b15cc7-89e1-4a84-8032-1c928fda1e42,561b5c74-fc0f-4cd4-a42f-57619b29d54f,379f05ae-f0af-4e9d-9832-9aef82860bc1,7d962ab6-9ebb-42d5-8e0f-e12f156100b6,a432a731-220a-4f1c-b8bc-61719211273d", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=27b15cc7-89e1-4a84-8032-1c928fda1e42,561b5c74-fc0f-4cd4-a42f-57619b29d54f,379f05ae-f0af-4e9d-9832-9aef82860bc1,7d962ab6-9ebb-42d5-8e0f-e12f156100b6,a432a731-220a-4f1c-b8bc-61719211273d;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');In any case, this drop in consumer confidence may be a starting point for what I have been waiting to see: some sign of wavering in people's certainty that a self-sustaining recovery is under way. As I have stated many times, this is a recovery brought about by massive amounts of government money printing. And, in the absence of that money printing, I think things could easily sputter to some degree.
See where the dollar stands todayTo repeat, Bernanke has been trying to talk tough lately -- for example, saying he plans to end quantitative easing (which means the Fed would stop buying Treasurys and mortgage-backed securities to pump money into the system). But as soon as signs of a meaningful economic recovery begin to recede, I expect him to coo like a dove.
San Francisco Fed President Janet Yellen took a page from that playbook last week at a gathering in San Diego, and her comments prompted this Wall Street Journal headline: "Fed's Yellen won't rule out new MBS buying if conditions warrant" (subscription required). The real risk is inflation Now, let's look away from the money-printing machine to what lurks in our future: inflation. It's got a way of sneaking up on you, and it has already popped up in places, not all of which you'd necessarily expect. Dennis Gartman, the editor of The Gartman Letter, provided a recent example I'd like to pass along:
"We thought we'd take a look at some of the prices of finished products as evidence of commodity price strength. For example, FoodBusinessNews notes that where 2005 = 100, the price of a milk chocolate bar was approximately 120 in early '09, and had gotten as high as 187 in late January. The vanilla ice cream index rose from approximately 84 (again, where 2005 = 100) in early '09 to 122 in late January.
Causes of inflation and deflation
"Interestingly, the 'devil's food cake index,' which notes the prices of the ingredients necessary to make a perfectly fine devil's food cake, rose from just about 140 (again, where 2005 = 100) in early '09 to just above 180 in late January. In other words, inflation in food prices is, or at least was, apparent and obvious."Gartman then points out that the proximate cause has been the big jump in sugar prices. But that's not the only item that has sprinted higher in the past year, and the prices of many other items could rise prospectively.
In the end, I don't know when it will be recognized that stagflation or inflation is the outcome, as folks seem inclined to believe deflation is in our future. But stagflation or inflation is where I think we are headed.
Continued: The market road ahead More from MSN Money
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Enter symbol or company:Recent Articles by Bill FleckensteinUS will suffer its own Greek crisis 02/19/2010A big, fat Greek bailout? 02/12/2010Confused? So are the markets 02/05/2010More . . .Fund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='a8anhgcb25tsxtd5t47ndqa8mgxjm3v7';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 4 of 4PreviousNextVictory_KP_JWM #1Friday, February 26, 2010 8:15:30 PMI'm in the same ball park as Fleckenstein - but with recent experience. We went through stagflation in the 70, and we also learned the effects in the 80's how pulling money back too soon can short circuit a recovery. So maybe this "economic purgatory" is better than a total market crash as those who were insisting - "let it crash" rather than bailing it out. But the economic purgatory is sure certainly not comfortable. From the investment side though - even during stagflation in the 70's - portfolio values continued to rise if dividends and capital gains were reinvested. And....I think that was the decade little known Wal-Mart exploded with about 15 splits on their stock.ReplyReport AbuseRiche7556 #2Friday, February 26, 2010 8:28:55 PMThere is no way they can sustain the economy long enough once they can't support the unemployment benefits it's game over, every thing will collapse, that's billions of dollars in revenue that won't be spent back into the economy people will be losing their jobs even worst than the beginning of the down turn there will be millions of people living on the streets, I hate bad news but this is just reality people that think the unemployed are lazy and leaches will learn soon enough about being unemployed .....ReplyReport AbuseJohn in Salem #3Friday, February 26, 2010 8:34:14 PMWhy won't they stop printing money? That is easy if they stopped printing money how could the dims afford to buy votes for themselves via payoffs to campaign donors, corrupt unions, crushing entitlements etc with the taxpayers money????
ReplyReport AbuseGM is worthless #4Friday, February 26, 2010 8:53:37 PMWhy won't they stop printing money? Because they are addicted and "we the people" aren't brave enough to resist. ReplyReport Abuse1 - 4 of 4PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/currency/why-the-fed-wont-stop-printing-money.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*To repeat, Bernanke has been trying to talk tough lately -- for example, saying he plans to end quantitative easing (which means the Fed would stop buying Treasurys and mortgage-backed securities to pump money into the system). But as soon as signs of a meaningful economic recovery begin to recede, I expect him to coo like a dove.
San Francisco Fed President Janet Yellen took a page from that playbook last week at a gathering in San Diego, and her comments prompted this Wall Street Journal headline: "Fed's Yellen won't rule out new MBS buying if conditions warrant" (subscription required). The real risk is inflation Now, let's look away from the money-printing machine to what lurks in our future: inflation. It's got a way of sneaking up on you, and it has already popped up in places, not all of which you'd necessarily expect. Dennis Gartman, the editor of The Gartman Letter, provided a recent example I'd like to pass along:
"We thought we'd take a look at some of the prices of finished products as evidence of commodity price strength. For example, FoodBusinessNews notes that where 2005 = 100, the price of a milk chocolate bar was approximately 120 in early '09, and had gotten as high as 187 in late January. The vanilla ice cream index rose from approximately 84 (again, where 2005 = 100) in early '09 to 122 in late January.
Causes of inflation and deflation
Gartman then points out that the proximate cause has been the big jump in sugar prices. But that's not the only item that has sprinted higher in the past year, and the prices of many other items could rise prospectively.
In the end, I don't know when it will be recognized that stagflation or inflation is the outcome, as folks seem inclined to believe deflation is in our future. But stagflation or inflation is where I think we are headed.
Continued: The market road ahead More from MSN Money
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Why won't they stop printing money? That is easy if they stopped printing money how could the dims afford to buy votes for themselves via payoffs to campaign donors, corrupt unions, crushing entitlements etc with the taxpayers money????
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